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Being Informed Does Matter: Fine Tuning Gross Negligence Twenty Plus Years After Van Gorkom

Bernard S. Sharfman, Unaffiliated

Abstract

This article first establishes that there are still a number of reasons why being informed does matter, despite the ability to incorporate an exculpation clause into a Delaware corporation’s certificate of incorporation. This is followed by an explanation of how Delaware’s business judgment rule became transformed from a doctrine of abstention to a standard of review in the context of procedural due care. Throughout this article, it is understood that the business judgment rule exits within a framework of corporate authority and accountability and that it serves as a significant tool for the protection of corporate board authority. The article recommends that the Delaware courts adopt a lenient gross negligence standard that can be consistently applied when trying to answer the question of whether or not a board was sufficiently informed when making a business decision. However, in recognition of the understanding that the Delaware Supreme Court’s decisions in Van Gorkom and Cede do not conform to such a lenient gross negligence standard in a merger situation, a less lenient gross negligence standard should be applied in that rather narrowly defined fact pattern.

Suggested Citation

Bernard S. Sharfman. "Being Informed Does Matter: Fine Tuning Gross Negligence Twenty Plus Years After Van Gorkom" The Business Lawyer, Volume 62, No. 1, pp. 135-160 62.1 (2006): 135-160.
Available at: http://works.bepress.com/bernard_sharfman/4